Non-Starters

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President Obama recently made a whirlwind tour of colleges and issued a series of proposals for making college more affordable. On the good side, his speeches spurred public discussion about the problems of higher education, especially its costs. On the bad side, they deflected attention from the causes of the problems.

U.S. higher education has been providing questionable products at high costs for years. Under the Bush administration, Secretary of Education Margaret Spellings tried to address the weaknesses with a special commission on higher education. Among other things, the commission proposed requiring schools to report their students’ learning outcomes. (That is, did they learn anything?) This caused something of a stir among universities, which scurried to create a voluntary program of “accountability” — briefly. The urgency faded away, especially when university lobbyists got Congress to forbid the Department of Education from making too many demands.

It was only with the 2008 crash and recession that the public took notice of higher education again. The economic downturn revealed that many college graduates, some with mindnumbing debt loads, were not able to get jobs. That public notice meant that President Obama would not be far behind.

Unfortunately, Obama’s recommendations are superficial. The centerpiece is the idea of rating colleges on affordability, graduation rates, and access to low-income students. That’s not very much different from the College Scorecard that the Department of Education issues now. The department even has a “hall of shame” — an annual listing of colleges that have too-high tuition or that raised their tuition too much. These efforts don’t seem to have had much of an impact, although more information is generally a good thing.

Obama wants to use the rating system to reward the schools that score well. He would provide higher Pell grants to students at schools that have both high graduation rates and high percentages of low-income students. But it is simply a fact that high percentages of Pell grantees are correlated with lower graduation rates. To have both a high percentage of Pell grantees and high graduation rates would probably require gaming through grade inflation (and grade inflation is already a problem).

Fundamentally, President Obama is trying to “fix” college problems through regulation and legislation, without changing the underlying incentives that push costs up at most schools. It does not take rocket science to diagnose what is wrong with higher education.

Essentially, too many students are going to school who don’t want to, who don’t benefit, and who don’t learn enough to justify high wages. The national mantra that “everybody ought to go to college” is reinforced by federal grants and loans (and, until recently, federal guarantees of private loans).

This artificial demand, a lot like the artificial demand for housing in the mid-2000s, enables colleges to keep pushing up their tuitions. They do this shamelessly because they are spending for education, which is “priceless.” Furthermore, most colleges are either government-owned or nonprofit, and thus there is no pressure to make, or even identify, a profit. The result is that all revenues are spent, and the hard task of controlling costs is ignored (again, education is “priceless”). Since there is no market for control (economists’ words for potential buyers scrutinizing a company to decide whether they can run it more efficiently and thus profitably), there is no pressure to keep prices down . . . as long, of course, as there is this continual demand.

With these university characteristics firmly in place, the president’s proposals are window-dressing. And it’s unlikely that Congress will pass any of them.

In closing, I should say that one of Obama’s suggestions is a good one: He thinks that students should not be able to get additional Pell grants if they have not completed a specific number of courses within a certain period of time. That would be a start in reforming the $30-billion-a-year Pell grant program — but only a start. Much more needs to be done.




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Comments

Fred Mora

Jane,

Good write up. I am wondering if the root of the problem isn't simply that student loans make more money available to the education marked, thus encouraging universities to raise their prices.

Jon Harrison

You summed it up in one sentence, Fred. You are 100% correct.

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